Man GLG UK Income, Artemis US Extended Alpha and First State Global Emerging Markets Focus are among several funds that Fairview Investing’s Ben Yearsley and Gavin Haynes think investors could add to their portfolios in 2020.
The themes driving markets this year are likely to be relevant again in 2020, according to the pair, as they continue to play out into the new year.
“There were three themes to watch for in 2019: Brexit, US-China trade relations and US interest rates,” said the pair. “We are not putting our heads too far above the parapet to say these factors will be as important for investors in 2020.”
Should Boris Johnson’s negotiated Brexit withdrawal agreement gain parliamentary approval, then investors will immediately focus on what kind of trade deal can be secured by the end of 2020.
US politics meanwhile will be dominated by the presidential elections – also towards the end of next year – which will see incumbent Donald Trump seek another term in office and make a resolution to the US-China trade dispute seem more likely.
Finally, US interest rates are likely to remain low after the panic caused by the Federal Reserve in 2018 where it was feared that the central bank had tightened too much.
Given that these themes are likely to remain unchanged, Yearsley and Haynes believe there are several funds that can take advantage of next year's opportunities.
“The UK is cheap,” said the Fairview founders. “In fact, the gap between the dividend yield and the yield on gilts is the widest since Queen Victoria’s reign. In addition, it is cheap when looked at on a global basis.”
Any kind of clarity on Brexit could lead to a relief rally for sterling and UK domestic-related stocks, they noted.
As such, Yearsley and Haynes are backing Henry Dixon’s Man GLG UK Income fund, which has built up a strong track record by identifying unloved dividend-paying stocks.
“He will look at value opportunities in large, mid and small companies and look to exploit the bearishness that has resulted in depressed valuations of UK domestically focused stocks,” they said.
Performance of fund vs sector & benchmark under Dixon
Source: FE Analytics
Under FE fundinfo Alpha Manager Dixon, the £1.2bn fund has made a total return of 72.13 per cent against a 40.89 per cent gain for the FTSE All Share benchmark and a 37.85 per cent return for the IA UK Equity Income peer group. Man GLG UK Income has a yield of 5.27 per cent and an ongoing charges figure (OCF) of 0.9 per cent.
With the presidential elections due to take place at the end of the year and the ongoing issue of the US-China trade war still unresolved, Haynes and Yearsley have selected a fund that should be able to take advantage of conditions whether the market moves up or down: Artemis US Extended Alpha.
“This fund is a 130/30 fund,” they said. “In other words, it has the ability to profit from falling share prices as well as rising ones.
“Artemis has a well-resourced US equity team and if taking an active approach then this is an interesting way to access the US market.”
Current manager William Warren has managed the fund since launch – most recently with Stephen Moore, who left the asset manager during the summer – during which time it has made a 135.47 per cent total return compared with a 108.51 per cent gain for the S&P 500 benchmark and a 92.1 per cent gain for the average IA North America peer. Artemis US Extended Alpha fund has an OCF of 0.85 per cent.
For investors looking for a contrarian play, Yearsley and Haynes have highlighted an emerging market strategy: First State Global Emerging Markets Focus.
Despite emerging markets having lagged their developed counterparts during 2019, the pair believe that the £58.9m First State fund – overseen by Rasmus Nemmoe and Naren Gorthy – could be one of those benefiting should performance turn next year.
“First State have always had a strong presence in this area and First State Global Emerging Markets Focus follows their well-tested, high conviction approach to investing in high-quality growth businesses,” they noted.
In addition, the Fairview fund pickers noted that the fund has a significant exposure to one of the worst-performing emerging markets this year: India. With a 27 per cent weighting in Indian stocks, the pair said, the fund would be well-placed to exploit any recovery in sentiment.
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
Since launch at the end of 2017, the fund has made a total return of 11.75 per cent compared with a gain of 2.06 per cent for the MSCI Emerging Markets benchmark and a 1.14 per cent return for the average IA Global Emerging Markets peer. First State Global Emerging Markets Focus has an OCF of 1.1 per cent.
Investors of a more nervous disposition but concerned by unappealing prospects for bond and commercial property markets might want to look at alternative options, said the Fairview founders, such as Architas Diversified Real Assets.
Haynes and Yearsley said the fund aims to deliver cash plus 4 per cent in a diverse portfolio of real assets, comprising “a weird and wonderful portfolio of aircraft leasing, social housing and catastrophe reinsurance”.
Architas Diversified Real Assets is managed by Solomon Nevins and Mayank Markanday and has made a 23.29 per cent since launch in 2014. It has an OCF of 1.14 per cent.
Finally, First State Global Listed Infrastructure has been “a firm favourite” with Haynes and Yearsley since launch in 2007.
“It invests in equities that are exposed to key infrastructure assets - things that many have to use on a daily or regular basis - often with inflation-linked income streams,” the pair noted. “This is a core long-term holding.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years, the £1.9bn fund – overseen by Alpha Managers Peter Meany and Andrew Greenup – has returned 32.04 per cent, slightly behind the FTSE Global Core Infrastructure 50/50 benchmark return of 36.1 per cent but ahead of its more generalist pees in the IA Global sector. The fund has an OCF of 0.78 per cent and a yield of 3.05 per cent.